Moily to decide on RIL relinquishment proposal

Oil Ministry has concurred with DGH's reasoning that RIL had overshot the time allotted to it for developing the area

A proposal to force Reliance Industries to give up 86 per cent of eastern offshore KG-D6 gas block, including eight gas discoveries worth at least $8 billion, has been put up to oil minister M Veerappa Moily.

The proposal based on recommendations of the Directorate General of Hydrocarbons (DGH) was put to Moily by his ministry a few days back, top officials said. The Ministry, in the note put to Moily, concurred with DGH’s reasoning that RIL had overshot the time allotted to it for developing the area and so should be as per contract be asked to relinquish most of the KG-D6 area.

The officials said Moily has to decide if leniency has to be shown to RIL since it has made several discoveries in the area and should be allowed to retain those areas for development.      

Rejecting RIL’s offer to relinquish 4,233 sq km of “low prospectively area” in the KG-DWN-98/3 or KG-D6 block, the DGH had stated that the company should contractually give up 6,601 sq km out of the total 7,645 sq km total area in the block.      If Moily decides to accept RIL's offer to enable the company to develop all of the 19 oil and gas discoveries made in the block so far, the proposal will have to go to the Cabinet as it would amount to making changes in a signed production sharing contract, officials said.      DGH Director General R N Choubey had on April 15 written to oil Secretary Vivek Rae that of the 19 oil and gas discoveries claimed by RIL, three finds have not been established as commercially viable in absence of test data and the company has not submitted any investment plans for another five.  

According to DGH’s calculations, 6,601 sq km of contract area proposed for cessation has at least 1.15 trillion cubic feet of known recoverable gas reserves valued at $4.83 billion at current prices.

Of the 19 finds, RIL began crude oil production from MA field in September 2008. It started gas output from MA field and Dhirubhai-1 & 3, the largest of the 18 gas discoveries in the block, in April 2009.

Contractually, companies are required to relinquish 25 per cent of the area in an oil and gas block at the end of first phase of exploration that spans three years.

At the end of second phase, 50 per cent of the area is to be given up and by the third phase only such area is allowed to be retained where the company has made a discovery and is required for development and production of the same. The second and third phases are of two years duration each..

RIL and its partner Niko Resources of Canada were awarded the KG-D6 block in 2000. The three-year Phase-1 ended on June 7, 2003 while the 2-year Phase-II expired on June 7, 2005. The third phase ended on June 7, 2007.

Sources said DGH in 2006 agreed to RIL proposal of declaring the entire 7,645 sq km as discovery area, thereby allowing the company to retain the full area.

The decision was ratified by a committee headed by Additional Secretary in the ministry and by the Oil Minister thereafter.

But the decision was questioned by government auditor CAG as at the end of the third phase, only 79% of the block area was covered by 3D seismic survey and yet the entire area was declared a discovery area.

CAG in its performance audit in 2011 had asked the ministry to review determination of entire contract area of KG-DWN-98/3 (KG-D6) as discovery area.

KG-D6 output has dipped from 69.43 million standard cubic meters a day achieved in March 2010, to under 14 mmscmd this month.